Europe trades mixed as banks remain weak

Miners gain as BHP Billiton rises on reported major gold find

By

SarahTurner

LONDON (MarketWatch) -- European shares traded mixed Monday, as strength in the mining sector got the upper hand over lingering worries about the effect of market turmoil on financial institutions such as Deutsche Bank and Northern Rock.

The pan-European Dow Jones Stoxx 600 index (SXXP) rose 0.1% at 376.97 with miners up 3.6%, in part due to strong gains for BHP Billiton (BLT)
BHP, -1.57%
the world's top miner.

The U.K.'s commodities-heavy FTSE 100 index (UKX) closed up 0.1% at 6,465.90, while the French CAC-40 index (1804546) slipped 0.1% at 5,692.49 and the German DAX 30 index (1876534) inched down 0.1% at 7,787.92.

BHP's shares rose 5.7 in London, boosted by a report about a massive gold discovery in South Australia. See full story.

Other London-listed miners were also doing well as gold futures hovered near 27-year highs following last week's move by the Federal Reserve to cut U.S. interest rates.

Stephen Dowds, head of international equities at the Northern Trust, noted that last week's Fed rate cut gave a boost to many cyclical companies, including miners.

The easing restored some confidence that the Fed's prepared to support economic growth. "The rate cut has been deemed as stimulative [for growth]. It's effectively a rate cut for countries where currencies are pegged to the U.S. dollar," he said.

Overall, Dowds said he's still reasonably positive for equities but noted that there's still a bit of nervousness about the financial sector, as reflected in interbank borrowing rates. "Libor rates are still showing quite large spreads," he said.

Banks under pressure

Banks have come under pressure in the past few months after revealing unexpected losses related to the U.S. subprime market and as the credit markets tightened up in response.

Deutsche Bank (514000)
DB, -3.94%
saw its shares lose another 1.8%, pulling back as Reuters reported that the German bank's profit could be hurt by up to 1.7 billion euros ($2.4 billion) when it revalues loans that have declined during the credit crunch.

And shares of troubled U.K. mortgage lender Northern Rock (NRK) gave back another 11.5% as the crisis around the first British bank to face a run on its deposits for more than 100 years continued to unfold. See London Markets.

Banks trading lower in Paris included Credit Agricole (004507), shares of which lost 0.6%, and BNP Paribas (013110), down 2.3%.

Merrill Lynch analysts said that they remain cautious on the European banking sector due to worries about the macroeconomic outlook, unappealing valuations and earnings expectations that may prove too optimistic.

Data out from Thomson Financial on Friday noted that third-quarter growth estimates have declined to 7.9%, down from 9.3% recorded a fortnight ago. The report also noted that deal values dropped sharply in the third quarter, to $329.6 billion from $709.4 billion in the second quarter of 2007.

OnVista gets takeover bid

Still, there was a bit of deal news out Monday. Shares of Germany's OnVista (546160) surged 38.7% to 20.66 euros after French online brokerage and financial Web site owner Boursorama (007522) said it's agreed to buy the firm for 138 million euros ($194 million), or 20.60 euros a share.

Shares of Boursorama, which is mostly owned by Societe Generale (013080), rose 0.6%.

Meanwhile, shares of German stock-exchange operator Deutsche Boerse (581005) climbed 3.7% to 94.00 euros, just off a high of 94.80 euros. The shares haven't traded around this level for more than ten years.

Citigroup analysts said in a note that the company has now provided reassurance on two out of three of the main bear arguments against the stock.

"Statements from Deutsche Boerse's new chief financial officer on costs and share buybacks have addressed criticisms over expense, ill-discipline and capital returns," said Citi's Daniel Garrod in a note.

Also on the move, shares of Volvo (VOLVB) slipped 2.5% in Stockholm, following the truck maker reporting a 4% decline in deliveries during the year to August.

Food and retail

Shares of French yogurt maker Groupe Danone (012064) rose 1.9% after Credit Suisse upgraded the firm to outperform from neutral, citing valuation. The shares have sustained a 10% drop in the past six months.

Meanwhile, Citigroup upgraded Tesco (TSCO) to buy from hold, saying that sales growth for Britain's No. 1 supermarket operator has bottomed out in the U.K. and that growth prospects now look compelling compared to peers. Tesco's shares rose 1.1%.

But shares of German supermarket group Metro (725750) lost 0.5% after UBS cut the firm to neutral from buy. UBS said the benefits from a likely restructuring of its portfolio don't offer enough upside after a roughly 14% rise in the share price in the last month.

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